The BRRRR Method, Step by Step

BRRRR — buy, rehab, rent, refinance, repeat — is a way of turning one pool of capital into several properties. The mechanics are simple. The execution is not, because the strategy depends on four estimates being right at once: the purchase price, the rehab cost, the after-repair value and the refinance terms.

This guide walks through the five steps and the arithmetic at each one. The BRRRR calculator applies the same model to your own numbers.

Step 1 — Buy

The purchase is where the strategy is won or lost. A BRRRR needs a property that is distressed enough to buy below stabilised value, but sound enough that the work is repair rather than reconstruction.

The number to track from the first day is the all-in cost:

All-in cost = Purchase price + Purchase closing costs + Rehab budget

Closing costs are typically a few percent of the purchase price. The rehab budget is the part that is almost always underestimated; more on that in the next step.

A useful discipline at this stage is to work backwards from the ARV. If the property will be worth $265,000, the refinance at 75% loan-to-value will produce a loan of $198,750. Add the refinance costs, and the all-in cost has to sit below that figure for the capital to be fully recovered.

Step 2 — Rehab

The rehab is the largest controllable cost and the most common source of schedule slippage. Three numbers matter: the budget, the contingency and the timeline.

Most experienced operators carry a contingency — commonly 10–15% of the construction budget — for the work that is only discovered after walls are opened. A budget without a contingency is an estimate, not a plan. The timeline matters for the same reason: every extra month of holding costs is cash that does not come back at the refinance.

The scope should be driven by the ARV, not by taste. The question is which repairs a buyer will pay for, not which upgrades are nicest.

Step 3 — Rent

The property has to be stabilised and leased before most lenders will refinance against its income. That means a market rent that can be supported by comparable rentals, a signed lease, and enough operating history for the lender to believe the number.

Rent feeds directly into net operating income, which feeds the refinance in two ways: the appraisal’s income approach and the lender’s coverage test. A property that rents for less than planned both appraises lower and covers its new debt service less comfortably.

Step 4 — Refinance

This is the step that defines BRRRR. The refinance replaces the acquisition financing with a long-term loan based on the property’s new value, and returns the capital that was tied up in the purchase and the rehab.

New loan = ARV × Refinance LTV
Refinance costs = New loan × Refinance cost %
Cash left in the deal = All-in cost − New loan + Refinance costs

A result at or below zero means the capital is fully recovered. The property now carries a loan against its new value, and the cash that was in it can go into the next deal.

The refinance is also where BRRRR deals most often stall. The lender lends against an appraisal, not against the ARV you entered. It may require six to twelve months of ownership, or documented completion of the work, before it will use the new value. And if the loan is a DSCR product, the property has to clear a coverage floor — the DSCR guide explains that test — which caps the loan independently of the LTV.

Step 5 — Repeat

The recovered capital goes into the next purchase. That is the whole point: the same dollars are recycled instead of being left in one property. The strategy compounds only if the first deal actually returns them; a deal that leaves $40,000 in the property reduces the capital available for the next one.

A worked example

Take a $150,000 purchase with $3,000 of closing costs and a $35,000 rehab. The all-in cost is $188,000. The property appraises at $265,000, and the refinance is 75% LTV at 7.5% with 2% in costs.

Line	Amount
Purchase price	$150,000
Purchase closing costs	$3,000
Rehab budget	$35,000
All-in cost	$188,000
New loan at 75% of ARV	$198,750
Refinance costs at 2%	$3,975
Cash left in the deal	−$6,775

The refinance returns the full $188,000 plus $6,775. With $2,500 of monthly rent, 6% vacancy, 8% management, 7% maintenance, 6% capex, $1,500 of insurance and $2,800 of tax, net operating income is $19,400 a year. The new loan costs $16,676 a year, and the capex reserve is $1,800, leaving $924 a year — about $77 a month in post-refinance cash flow.

That is a realistic BRRRR outcome: capital recovered, cash flow thin but positive, and the property standing on its own numbers.

Where BRRRR deals fail

The arithmetic is easy; the assumptions are not. The usual failure points:

• The ARV is too high. Every dollar of ARV is roughly 75 cents of loan. A $20,000 appraisal miss removes $15,000 of refinance proceeds.
• The rehab runs over. Overruns consume cash and time, and time adds holding costs.
• The rent does not materialise. Vacancy or a lower market rent reduces NOI, which reduces both the appraisal and the coverage.
• The refinance does not qualify. Seasoning, appraisal, credit, reserves and coverage floors are lender requirements, not calculator inputs.
• The post-refinance cash flow is negative. Recovering the capital is not enough if the property cannot carry its new debt; the BRRRR calculator shows both numbers.

Before starting

The minimum analysis is four inputs and two outputs. Inputs: purchase price, rehab budget, ARV and refinance terms. Outputs: cash left in the deal and post-refinance cash flow. If the first is comfortably above zero, the deal is not a BRRRR — it is a hold with extra steps. If the second is negative, the capital recovery came at the cost of a property that does not pay for itself.

Both are arithmetic. Neither is a recommendation.

Sources

• Appraisal Institute — professional standards and the income approach to value
• Consumer Financial Protection Bureau — Understand the different kinds of loans available